2050 Foresight

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Just for fun, let’s turn away from the troubles of the present — the meltdown of the subprime mortgage sector, the volatility of the stock market, the cratering of hedge funds — and look to the horizon. What is the world going to look like in 2050?

The growing consensus is that we will be in the middle of the Chinese century. “China’s rise has more in common with the rise of the United States a century earlier than with the progress of its modern-day predecessors and followers,” writes Oded Shenkar in his 2005 book The Chinese Century. Measured in terms of purchasing power parity (PPP), China’s economy is already number two and gaining fast on the United States.

But it’s not just China that is ascendant. During the next few decades, studies say, the world’s economic center of gravity will shift. By 2050, the seven largest emerging economies, or E7 — China, India, Brazil, Russia, Indonesia, Mexico, and Turkey — could collectively surpass the current G7 countries (the United States, Japan, Germany, the United Kingdom, France, Italy, and Canada) by 75 percent in PPP terms, or by 25 percent in U.S. dollar terms, according to a 2006 PricewaterhouseCoopers report, “The World in 2050.” Currently, the E7 economies are 20 percent the size of the G7 in dollar terms and 75 percent in PPP terms.

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China’s GDP could be nearly half again as large as the United States’s, predicts John Hawksworth, author of the PwC report. Meanwhile, India’s economy could equal the United States’s in PPP terms. By 2050, in fact, India could be the fastest-growing large economy, with Indonesia second, as their populations age less rapidly than China’s.

As the E7 economies grow, so will their corporations. Antoine Van Agtmael, author of the recent book The Emerging Markets Century, notes that 58 of the global Fortune 500 companies are currently based in emerging markets. He writes: “We all sense — and those who travel frequently know from experience — that the pulsing center of the 24/7 global economy is shifting rapidly away from the cosmopolitan cities of London, Paris, and New York to the equally cosmopolitan cities of Shanghai, Mumbai, Seoul, and Mexico City.”

Is Your Job Next?

But while fashionistas shop for Fendi bags in Shanghai, many Americans could face lost jobs or lower wages. If you think global competition is bad now, it will only get worse, especially in tradable services. “Eventually, the number of service-sector jobs that will be vulnerable to competition from abroad will likely exceed the total number of manufacturing jobs,” predicted Princeton economist Alan Blinder in a 2006 Foreign Affairs article. “Thus, coping with foreign competition, currently a concern for only a minority of workers in rich countries, will become a major concern for many more.”

But cheaper goods and services are a good thing for consumers. And as the developing countries grow, their markets will become increasingly attractive to U.S. businesses. Also, global companies from emerging markets will establish more subsidiaries, and create more jobs, in the United States. Van Agtmael speculates that the rise of emerging-market multinationals may stoke the competitive fires of Western-based companies, as Japanese companies did in the 1970s.

The United State of Florida

For many Americans, one of the greatest potential benefits of the rise of the developing economies may be a more comfortable retirement. That’s an argument made by Wharton professor Jeremy Siegel, notably in his 2005 book The Future for Investors.

Siegel notes that in 1950 there were seven workers per retiree in the United States. Today there are five, and by the year 2050 there will be fewer than three. The situation is worse in Japan and Europe. As such dependency ratios become more dismal, retirees will confront two key questions: Who will produce the goods they will need, and who will buy their financial assets?

The answer to both, says Siegel, is the rapidly growing countries of the developing world. Just as the other 49 states currently produce goods for and buy the stocks and bonds of Florida retirees, so will the countries of the developing world do for the United States and other developed countries. The increasing demand, Siegel believes, will stave off a slide in asset prices. As a result, by 2050, “developing countries will own most of the world’s capital,” he writes. “Only one-third of the stock-market capitalization will be in the developed world. Two-thirds will be in the rest.”

In sum, then, we should welcome the rise of the emerging economies. “[W]e would regard the rise of China, India, and the other E7 economies as being beneficial to the long-term growth potential and average living standards of the G7 and other established OECD [Organisation for Economic Co-operation and Development] economies,” writes Hawksworth. “But there will clearly be both winners and losers from the process of adjusting to this new world economic order.”

Feeling the Heat

Of course, by 2050 we could all be big-time losers if global warming continues unabated. Six months after his first study, Hawksworth produced another report that considered six scenarios for the growth of carbon emissions by 2050. Given current trends, China will become the world’s biggest carbon emitter by 2010, predicts Hawksworth, overtaking the United States. By 2050, the total carbon emissions of the E7 countries will be more than double that of the G7.

Will global growth continue to drive global warming and hence lead to our undoing? Hawksworth’s baseline scenario, a “business as usual” benchmark in which growth increases and energy efficiency improves in line with current trends, could result in atmospheric carbon dioxide levels more than doubling by 2050, to around 550 ppm (parts per million). That would exceed the 450–500 ppm levels that scientists deem maximally acceptable.

Hawksworth’s favored scenario, in which annual global GDP growth is not constrained, involves a significant shift from fossil fuels to renewable and nuclear energy, improved energy efficiency, and using carbon capture and storage technologies. In this scenario, CO2 levels would fall 17 percent by 2050, to a stable concentration around 450 ppm.

Achieving this would mean holding E7 emissions growth between 2004 and 2050 to just 30 percent, while reducing the growth of G7 emissions by an average of just over 50 percent. Can it be done? Hawksworth is cautiously optimistic, calculating that moving to a low-carbon economy could cost no more than a year’s worth of global GDP growth.

To be sure, making predictions is hard, especially about the future. In both of his studies, Hawksworth presents a wide range of possibilities. Any number of things could throw the safest estimate out of whack. Take oil, for example. According to a February report from the Government Accountability Office, “most studies estimate that oil production will peak sometime between now and 2040.” Oil accounts for a third of global energy consumption, says the GAO, and it’s pretty expensive now. What happens when the world’s oil supply begins to decline, say around 2050?